How to hire a location intelligence firm
Business analytics have the difficult task of being accurate and telling a simple and fast story at the same time. Location analytics have it particularly hard because it hinges critically on accurately measuring external market data, which in turn depends on how well the trade area captures the complexity of consumer purchase behavior. In contrast, trade area definition is not typically required for internal customer analytics. Furthermore, Geographic Information System (GIS) software has made matters worse by operationalizing over-simplified trade area mapping solutions too often disguised as accurate.
Location analytics, however, are extremely sensitive to the size of the market, which in turn is based on the size of the trade area. This makes trade area definition one of the most important assumptions in capital expenditure decisions. This is the paradox of business intelligence – where some of the most important business decisions are made inside a culture of shortcuts, where simplicity and speed trump the accuracy of more complex scientific location analytics. This is why we have built a Digital Twin location solution.
Hiring a location intelligence firm is about exposing and understanding the shortcuts and then figuring out whether you can live with the consequences. Here’s a list of questions to ask a prospective firm.
- How does your application identify sites where there are too many retailers for the size of the market? Over-competitive retail cluster traps are one of the largest barriers to higher revenue, lower cost retail networks. It affects about half of all retail networks, leaving them limping along in mediocre revenue sites they can’t grow, and it doesn’t make sense to close either. The cause is typically a simple trade area definition that too often overestimates consumer spending and doesn’t include the impact of competition. For example, trade areas derived from circles, drive-times, and mobility data. One potential solution if you must use the above methods is to test the sensitivity of the results to changes in the size of the trade area. Then as a second step, include the impact of competition for the top locations.
- How does your application ensure that it doesn’t miss a great opportunity? This is a problem for all conventional methods because they require a proxy for the location of each potential opportunity to analyze. Most use a listing of other competitors, which omits new potential sites that don’t have competitors. For example, the highest revenue Wendy’s restaurant in Canada is a new build in Winnipeg, Manitoba, and it’s located in a site without other fast-food competitors. One potential solution if you must use conventional trade area definitions is to broaden the scope of proxies to include sites like convenience stores and gas stations along with competitor sites.
- Does your business listing source include both chains and local mom & pop retailers? Most of the major business listing providers only have about half the number of actual retail competitors because they miss local retailers. This can have an enormous impact on the analysis and it’s why Exceed Analysis has built its own comprehensive retail listing database for Canada.
